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The Return of Ron

With Ron Perelman, the archetypal corporate raider, now one of Citigroup's largest shareholders, the wolf is finally on the inside.

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Ron Perelman, tanned, buff, and sporting a Bruce Willis–like buzz cut, is lounging in one of the plush armchairs -- feet thrust over one side -- in his living room–cum–office at his townhouse on East 62nd Street. He is tieless, with his rolled-up sleeves revealing his surprisingly ripped forearms. There is no cigar. He is chugging mineral water by the bottle and talking about Citigroup and the 40 million shares that he now owns. "Citigroup is one of the great financial-services companies in the world. Unbelievable earnings power," he exudes. "And I think it is a grossly undervalued company."

There was a time not so long ago when such words from Perelman would send Fortune 500 CEOs running for cover. To a large extent, Perelman defined the term corporate raider. Revlon succumbed to his advances in 1985 -- the original hostile takeover. Gillette and Salomon Brothers were also Perelman targets. But not now: Citigroup chairman and CEO Sandy Weill should rest easy. Perelman calls himself a very passive shareholder. "I have no desire or intention to ask for a board seat," he says. "It was not part of the deal."

But surely if Sandy himself asked, he would consider a seat. The Citigroup board is by far the most prestigious on the Street. And it's not as if he would be a stranger. Skadden Arps's Kenny Bialkin, Sandy's personal M&A lawyer, is a pal. Revlon board member Vernon Jordan's wife, Ann Dibble Jordan, is also a Citigroup board member. Bob Rubin he knows from Rubin's time at the Goldman Sachs arbitrage desk in the go-go eighties. "Yeah, I'd consider it," he rasps. "But I don't see why he'd ask me. Sandy seems to be doing fine without me."

Indeed. While Perelman is essentially a somewhat-worse-for-wear-financially, eighties-era takeover artist, hobbled by his billions in debt and his endless "Page Six" dramas, Weill presides grandly over his Citigroup kingdom -- his star-studded board firmly in his pocket. Nevertheless, Perelman's latest gambit does have a certain time-warpy feel to it. By selling his 32 percent stake in Golden State Bancorp, a chain of sleepy California banks, to Citigroup, Perelman is set to net almost $2 billion -- $1.3 billion of which (40 million shares) he will take in Citigroup stock. Talk about tantalizing little facts. All of a sudden, Perelman's Citigroup stake will dwarf Weill's 32.5 million shares and make Perelman the largest individual shareholder in Citigroup this side of Saudi Arabia's Prince al-Waleed bin Talal.

That said, Felix Rohatyn is surely not cutting short his summer vacation to plot defensive tactics with Sandy. But this much is true: In the perhaps anxious mind of Ron Perelman, he is a player again, and not a moment too soon. Hundreds of millions of Perelman dollars have evaporated in such high-profile bankruptcies as Marvel Comics and Sunbeam (though Perelman wasn't the only one Al Dunlop took to the cleaners). And Revlon, the company that he paid $1.8 billion for in 1985, is now worth $200 million and this August had its debt downgraded to bordering on junk status.

Most recently, his latest plan to direct moneys from long-suffering shareholders to his own coffers has come up short. After more than a year in court, he rescinded his much-derided attempt to get one of his downtrodden companies, M&F Worldwide, to pay him $128 million, or $17.50 per share (four times the actual market price), for his stake in Panavision, another down-on-its-luck entity he controls. His net worth, $6 billion just a few years ago, is now said to be around $4 billion and consists largely of his Citigroup investment -- arguably the best bet that Perelman has ever made.

The story goes like this. In 1988, Perelman paid $314 million to the federal government for five beaten-down thrifts in the wilds of Texas. It was the tail end of the S&L crisis, and regulators were offering all sorts of inducements to clear their books of these struggling institutions. So Perelman got these banks, packaged together and called First Gibraltar, free of their bad loans. Even sweeter was the $2.7 billion in net operating losses that he still uses to shield income at MacAndrews & Forbes, the holding company for all his investments. He hired a local bank wizard, Gerald C. Ford, to run his banks for him, and in 1993, he and Ford sold out for a billion dollars. "It was a spectacular deal," he says with a faraway look. "It was a guaranteed balance sheet and a guaranteed P&L."

In 1994, when Ford proposed that they buy into another struggling thrift -- this one called First Nationwide and headquartered in California -- Perelman jumped. By May of this year, First Nationwide had become Golden State Bancorp, a profitable bank network with 370 branches strategically located throughout the state. Citigroup, for all its global reach and East Coast clout, has always been underbanked in California. Golden State was thus a plum for Weill. Having paid $12.5 billion for Banamex in neighboring Mexico -- making Citigroup the largest foreign bank there -- his piddling exposure in California had become something of an embarrassment.

In December, Perelman and Weill were having one of their twice-yearly lunches -- this one being held in one of Weill's private dinning rooms at Citigroup headquarters. "It was one of those easy schmoozing-update lunches," Perelman says. "We talked about the world -- but not Golden State." Shortly thereafter, though, Weill put in a call to Perelman. "I want to take a look at Golden State," he said. "Why don't you have Jerry" -- as in Ford -- "call Bob" -- as in Willumstad, a senior Weill operative. By May, the deal was done. "It was a great deal for Citi," says Perelman. "We took a close look at Citi, saw it as a great company. We always knew we would have to do something with our bank. We just were not sure exactly what. Sandy sort of solved that."

Strangely enough, these two Wall Street icons had never done any business together. While Perelman attacked the Street Establishment from the outside, Weill took the opposite tack. He painstakingly cobbled together two separate financial empires, Shearson Lehman and Citigroup, over a 40-year span by sweating it from the inside of the boardroom. No hostiles for him: Sandy just acquired, with the deal sometimes secured over chicken salad prepared by his wife, Joan, at their house in Greenwich.

Not that they were strangers. Perelman is a trustee and a big-time donor at Carnegie Hall -- where Weill presides as chairman -- as are five other members of the Citigroup board. Both men are also arguably among the biggest fee generators ever for the M&A law firm Skadden Arps -- a firm that the ever-litigious Perelman has been using since the early eighties.

"Sandy is very smart, very clever, very well informed," says Perelman. "He knows the Street better than anyone else in the world." It was indeed a beauty of a deal -- a real work of art. Sandy needed banks in California, but he didn't want to overpay. Perelman, Ford, and his longtime consigliere Howard Gittis owned 50 percent of Golden State and wanted to cash out. Voilà. So well-crafted was it that investment bankers were hardly needed; Smith Barney and Goldman Sachs were called in at the end just to provide their blessings.

Not so happy have been Golden State shareholders. Since the deal was announced in May, Citigroup's stock has declined by 15 percent or so -- making the deal even cheaper for Weill. Three lawsuits have been filed, stating that the deal was an inside job struck just to enrich Perelman, who, the suit claims, was in a liquidity crunch and needed to sell quick. For two years before the deal, Perelman had been selling forward his Golden State stock -- a complicated arrangement whereby he got to raise cash while keeping control of the stock. One of those weird, too-good-to-be-true Wall Street confections one sees every now and then.

"It was a clever idea," Perelman admits. "It's a way to create liquidity as well as saving the ups on the stock."

So was there a liquidity problem? At the mention of it, Perelman leaps from his chair, his voice rising a bit in tone. "It's all nonsense," he says of the rumors that he is experiencing a liquidity squeeze. "Look, if I really wanted to create liquidity, I would have sold all the stock. I wouldn't have done these forward sells. But there is no need for liquidity. We've got plenty of it in other areas. We basically have no debt" at MacAndrews & Forbes. Ron Perelman's saying he has no debt (Revlon alone has $1.6 billion on its books, and no one on Wall Street has made better use of the junk bond) is perhaps a stretch. But it is clear that such accusations cut close to the bone. Are times as good as they were five years ago? Probably not, and there is no doubt that his cost of living remains on the high side. In the townhouse, giant Lichtensteins cover the walls, servants and security men are everywhere, and a black Mercedes is parked out front. But if there is one thing that Ronnie and Sandy both know, it is that living richly is no sin as long as you don't run out of deals.

So, one wonders, what's your next move, Ron? The markets are getting whacked, stocks are cheap. "There are a lot of undervalued situations out there ripe for takeovers," he says. "But Citi isn't one of them." Anything specific? Perelman's sly grin breaks into a wheezy cackle of a laugh: "That's a good try." How about buying more Citigroup at these levels? Perelman pauses a beat. "Maybe," he says.

E-mail: landon_thomas@newyorkmag.com


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